BILL VERNON: The minimum wage is about economics, not fairness

Wednesday

Jan 22, 2014 at 10:00 PMJan 22, 2014 at 10:04 PM

Businesses that are forced for arbitrary political reasons to pay higher entry-level wages can’t waive a wand and increase their sales.

According to the Massachusetts Budget and Policy Center, the unemployment rate among residents 16-24 years old doubled between 2000 and 2013. In the same period the state minimum wage was increased three times from $6 to $8. That’s a 33 percent increase. Labor advocates and well-meaning lawmakers don’t see a connection between these facts.

Plenty of economists do, however. According to David Neumark of the University of California, Irvine, 80 percent of the research that he surveyed found that higher minimum wage laws resulted in higher unemployment, especially among young and inexperienced workers. It’s true that there are some economists who disagree, and the advocates have seized on their research. What that proves is the limited utility of macroeconomics as a way to understand what common sense makes obvious.

Businesses that are forced for arbitrary political reasons to pay higher entry-level wages can’t waive a wand and increase their sales. They can’t make their other costs disappear either. Think of your own circumstances. When was the last time your taxes went down? How about your rent? Energy costs, supplies and materials, professional fees, you name it and it very likely costs more.

That’s why we should raise the minimum wage! That’s what the advocates say. This is the Money-Grows-on-Trees theory of economics. It’s possible by some magic to order businesses to pay higher wages without raising the cost of business. It doesn’t work that way.

Nevertheless, the Massachusetts Legislature is once again considering an increase in the minimum wage. This time from $8 per hour to $11 per hour, a 37 percent increase in less than two years. From there the rate would go up every year forever depending on inflation. You probably can’t count on a 37 percent pay raise by the end of 2015. So you’re probably not planning on increasing your household budget by that amount. If this bill passes, however, the small businesses in your town will have to pay their youngest and least experienced workers 37 percent more regardless of whether you and your neighbors spend more in their shops and restaurants.

The advocates argue that the massive increase is necessary to help low-income families make ends meet. The problem with that argument is that there just aren’t that many full-time adults supporting families on entry-level jobs. In fact, according to the federal Bureau of Labor Statistics less than 3 percent of all hourly paid workers in Massachusetts earn the minimum wage. An even smaller fraction of working adult men and women over the age of 35 depends on the minimum wage. That means that the actual percentage of parents supporting children on $8 per hour is nearly zero.

The advocates persist in this argument, however, because it gives them an emotional advantage. But it’s wrong, not only because it’s deceptive but because it will ultimately harm the people whom they claim to be supporting.

Many of the youngest and least experienced workers, including the few who have children, will very likely lose the jobs they desperately need. According to an NFIB study, as many as 60,000 jobs in Massachusetts will vanish over the next 10 years if this bill passes. Most of them will disappear from the small business sector.

There’s another factor working against young workers, too. Raising the minimum wage makes entry-level jobs more attractive to older workers, especially if they’re unemployed or looking for part-time money. As the pool of candidates grows, the competition for the lowest jobs gets more intense. Younger workers with the lowest skills and least experience find themselves competing against older workers with higher qualifications and more maturity. In other words, raising the minimum wage prices younger workers out of the market for the jobs they need more than anyone.

If lawmakers and the advocates are genuine in their concerns, they’d join small-business owners and taxpayers in calling for policies that create more, not fewer, opportunities for employment, promotion, entrepreneurship and investment. A growing economy extends prosperity downward. A stagnant economy cuts off the bottom rungs of the ladder and prevents low-wage workers and the poor from climbing.

Raising the minimum wage in Massachusetts is more about politics than it is about economics or “fairness.” Indeed, there is nothing fair about capping opportunities for the poor by punishing small businesses.

Bill Vernon is State Director for the National Federation of Independent Business (NFIB), an advocacy group that represents several thousand small businesses in Massachusetts.

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